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Copyright 2007 Prentice Hall 14-
Organizational Theory, Design, and Change
Fifth EditionGareth R. Jones
Chapter 4
Basic Challenges of Organizational
Design
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Learning Objectives
1. Describe the four basic organizational design challenges confronting managers and consultants
2. Discuss the way in which these challenges must be addressed simultaneously if a high-performing organizational structure is to be created
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Learning Objectives (cont.)
3. Distinguish among the design choices that underlie the creation of either a mechanistic or an organic structure
4. Recognize how to use contingency theory to design a structure that fits an organization’s environment
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Differentiation
The process by which an organization allocates people and resources to organizational tasks
Establishes the task and authority relationships that allow the organization to achieve its goals
Division of labor: the degree of specialization in the organization
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Differentiation (cont.)
In a simple organization, differentiation is low because the division of labor is low Individuals typically perform all
organizational tasksIn a complex organization,
differentiation is high because the division of labor is high
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Organizational RolesSet of task-related behaviors
required of a person by his or her position in an organization As the division of labor increases,
managers specialize in some roles and hire people to specialize in others
Specialization allows people to develop their individual abilities and knowledge within their specific role
Organizational structure is based on a system of interlocking roles
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Organizational Roles (cont.)
Authority: the power to hold people accountable for their actions and to make decisions concerning the use of organizational resources
Control: the ability to coordinate and motivate people to work in the organization’s interests
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Subunits: Functions and Divisions
Function: a subunit composed of a group of people, working together, who possess similar skills or use the same kind of knowledge, tools, or techniques to perform their jobs
Division: a subunit that consists of a collection of functions or departments that share responsibility for producing a particular good or service
Organizational complexity: the number of different functions and divisions possessed by an organization
Degree of differentiation
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Function Types Support functions: facilitate an
organization’s control of its relations with its environment and its stakeholders
Purchasing, sales and marketing, public relations and legal affairs
Production functions: manage and improve the efficiency of an organization’s conversion processes so that more value is created
Production operations, production control, and quality control
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Function Types (cont.) Maintenance functions:
enable an organization to keep its departments in operation
Personnel, engineering and janitorial services
Adaptive functions: allow an organization to adjust to changes in the environment
Research and development, market research, and long-range planning
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Function Types (cont.)
Managerial functions: facilitate the control and coordination of activities within and among departments
Acquisition of, investment in, and control of resources
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Vertical and Horizontal Differentiation
Vertical differentiation: the way an organization designs its hierarchy of authority and creates reporting relationships to link organizational roles and subunits
Establishes the distribution authority between levels
Horizontal differentiation: the way an organization groups organizational tasks into roles and roles into subunits (functions and divisions)
Roles differentiated according to their main task responsibilities
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Balancing Differentiation and Integration
Horizontal differentiation is supposed to enable people to specialize and become more productive
Specialization often limits communication between subunits
People develop subunit orientation Subunit orientation: a tendency to
view one’s role in the organization strictly from the perspective of the time frame, goals, and interpersonal orientations of one’s subunit
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Balancing Differentiation and Integration (cont.)Integration: the process of
coordinating various tasks, functions, and divisions so that they work together and not at cross-purposes
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Types of Integration Mechanisms
Hierarchy of authority: dictates “who reports to whom”
Direct contact: managers meet face to face to coordinate activities
Problematic that a manager in one function has no authority over a manager in another
Liaison roles: a specific manager is given responsibility for coordinating with managers from other subunits on behalf of their subunits
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Types of Integration Mechanisms (cont.) Task force: managers meet in
temporary committees to coordinate cross-functional activities
Task force members responsible for taking coordinating solutions back to their respective functions for further input and approval
Teams: a permanent task force used to deal with ongoing strategic or administrative issues
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Types of Integration Mechanisms (cont.) Integrating role: a new, full-time
role established to improve communications between divisions
Focused on company-wide integration
Integrating department: a new department intended to coordinate the activities of functions or divisions
Created when many employees enact integrating roles
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Balancing Differentiation and Integration Managers facing the challenge of
deciding how and how much to differentiate and integrate must:
Carefully guide the process of differentiation so that it develops the core competences that give the organization a competitive advantage
Carefully integrate the organization by choosing appropriate integrating mechanisms that allow subunits to cooperate and that build up the organization’s core competences
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Balancing Centralization and DecentralizationCentralized organization: the
authority to make important decisions is retained by top level managers Top managers able to coordinate
activities to keep the organization focused on its goals
Decentralized organization: the authority to make important decisions is delegated to managers at all levels in the hierarchy Promotes flexibility and
responsiveness
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Balancing Centralization and Decentralization (cont.)
Ideal balance entails: Enabling middle and lower
managers who are at the scene of the action to make important decisions
Allowing top managers to focus on long-term strategy making
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Balancing Standardization and Mutual Adjustment
Standardization: conformity to specific models or examples that are considered proper in a given situation Defined by rules and norms
Mutual adjustment: the process through which people use their judgment rather than standardized rules to address problems, guide decision making, and promote coordination
Formalization: the use of rules and procedures to standardize operations
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Balancing Standardization and Mutual Adjustment (cont.) Socialization: Understood Norms
Rules: formal, written statement that specify the appropriate means for reaching desired goals
Norms: standards or styles of behavior that are considered typical for a group of people
May arise informally External rules may become internalized norms
Socialization: the process by which organizational members learn the norms of an organization and internalize these unwritten rules of conduct
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Standardization versus Mutual AdjustmentChallenge facing managers is:
To find a way of using rules and norms to standardize behavior, and
to allow for mutual adjustment to give managers opportunity to discover new and better ways to achieve goals
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Mechanistic and Organic Organizational StructuresMechanistic structures:
structures that are designed to induce people to behave in predictable, accountable ways Emphasis on the vertical command
structure Roles are defined narrowly Promotion is slow and steady Best suited to organizations that face
stable, unchanging environments
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Mechanistic and Organic Organizational Structures (cont.)Organic structures: structures
that promote flexibility, so people initiate change and can adapt quickly to changing conditions Less emphasis on vertical command
structure Roles are defined loosely Status conferred by ability to provide
creative leadership Encourages innovative behavior Suited to dynamic environments
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Contingency Approach
A management approach in which the design of an organization’s structure is tailored to the sources of uncertainty facing an organization
Organization should design its structure to fit its environment
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Lawrence & Lorsch: Differentiation, Integration, and the Environment
Investigated how companies in different industries differentiate and integrate their structures to fit the environment
Three industries that experienced different levels of uncertainty:
The plastics industry The food-processing industry The container or can-manufacturing
industry
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Findings: Lawrence and LorschWhen environment is perceived
as more unstable and uncertain: Effective organizations are less
formalized, more decentralized and rely more on mutual adjustment
When environment is perceived as stable and certain: Effective organizations have a more
centralized, standardized, and formalized structure
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Burns and Stalker
Also found that organizations need different kinds of structure to control their activities based on the environment Organic structures are more
effective when the environment is unstable and changing
Mechanistic structures are more effective in stable environments
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Table 4-2: The Effect of Uncertainty, Differentiation and Integration